Order for largest container ships helps Hyundai Heavy enter China

Hyundai Heavy Industries Co. failed for eight years to win ship orders from China. That ended when it pledged to build the world's biggest container carrier.

China Shipping Container Lines Co. this week said it chose Hyundai Heavy to construct five vessels that can each carry 18,400 20-foot boxes. The world's biggest yard, which has already won orders for five 14,000-box vessels this year, beat Chinese builders for the $683-million contract.

Rising demand for bigger and more fuel-efficient ships from lines including A.P. Moeller-Maersk A/S will help South Korean yards boost profits amid an overall slump in orders caused by a vessel glut. The nation's shipbuilders have dominated the construction of mega ships that are longer than Eiffel Tower as they built almost all such vessels in operation.

"Making these ships isn't easy," said Park Moo Hyun, an analyst at E*Trade Securities Korea. "South Korean yards are the only ones that have proved these big ships can be built on time. Chinese shipyards are still way behind and that gap is only going to get wider."

Since 2010, yards in South Korea delivered all except one of the 143 vessels that can carry more than 10,000 boxes, according to Clarkson Plc, the world's biggest shipbroker.

Hyundai Heavy dropped 1 percent to 201,500 won as of 10:21 a.m. in Seoul trading. The stock has fallen 17 percent this year, compared with a 1.7 percent decline in the benchmark Kospi index.

A South Korean yard previously won a Chinese order for container ships in August 2007, Park said. Samsung Heavy Industries Co., the world's second-largest shipbuilder, got the contract, also from China Shipping, to build eight vessels with a capacity to haul 14,000 boxes each. The ships were delivered by the first half of last year.

Hyundai Heavy's previous order from China was in January 2005 for four container ships that can each carry 10,000 boxes, the Ulsan, South Korea-based company said. The vessels were all delivered by 2008.

China Shipping placed the order with Hyundai Heavy after a tender in which Chinese yards also participated, the carrier said in an e-mail. As much as 70 percent of the price would be paid when the ships are delivered. The company favors Chinese builders when conditions and offers match, it said.

"Korean yards do have the capability to build better, giant ships," said Sarah Wang, a Shanghai-based analyst at Masterlink Securities Corp. "China Shipping may have placed the order because of the technology."

The new ships will use an engine that can automatically control fuel consumption to suit speed and sea conditions. The technology will help improve fuel efficiency, reduce noise and cut emissions. Delivery will start in the second half of 2014.

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